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Accounting & Finance

The pros and cons of partnering with Amazon

Posted by Neha De

November 16, 2020

Amazon has revolutionized online shopping for people across the world. The site is visited by millions of digital consumers every day, making it the world’s most renowned international online marketplace. According to The 2019 Amazon Consumer Behavior Report, 89 percent of respondents agreed that they were more likely to buy products from Amazon than other e-commerce stores.

Last year, the e-commerce giant reported that American small- and medium-sized businesses (SMBs) sold, on average, 4,000 items per minute in Amazon’s stores. These numbers make it clear that retailers should at least consider listing their products on Amazon.

While Amazon can be an extremely attractive sales channel for SMBs, the results they achieve will depend on numerous factors — what works for one retailer might not necessarily work for another. Therefore, we have listed the pros and cons of partnering with Amazon.

The upside of selling on Amazon

These are the top four reasons why partnering with Amazon can be the best thing for a company:

1. Easy to get started:

Launching a product on Amazon is relatively straightforward, but certain categories of products will require extra effort than others. The layout is user-friendly for both buyers and sellers. And especially for sellers, Amazon offers a wide range of tools that make the listing process even simpler.

Those just starting out on their own will have to set up their e-commerce website using a reliable and secure e-commerce structure, find and manage warehouse space, package and ship products after a sale has been made, and handle inquiries from customers. However, many of these tasks are already in place with Amazon.

In addition, the Fulfilled by Amazon (FBA) feature gives retailers access to Amazon’s own warehousing and shipping capabilities. All they need to do is send their products to Amazon, and the company stores them and sends them to buyers on the retailers’ behalf, at a fee.

2. Bigger platform:

According to the latest estimates from Consumer Intelligence Research Partners (CIRP), Amazon had 126 million Prime members in the U.S. alone, as of September — Prime members account for approximately 65 percent of Amazon shoppers in the most recent quarter.

By selling on Amazon, business owners have the chance to reach this huge base of buyers. And if everything goes well, they can expect sales to rise much faster than if they were selling directly through their own websites.

However, it is still a good idea for merchants to maintain their own websites and sales channels for additional sales.

Talk to us about how our back-office services can help your small business scale faster.

3. International reach:

Amazon is a trusted brand worldwide, which allows entrepreneurs the opportunity to expand their offerings into several different markets. It gives them the option to go beyond their local geographic locations and extend their reach to other parts of the globe.

4. Good platform for unique products:

Companies that manufacture and sell their own products can use Amazon to reach a much wider audience. With unique products, merchants can have more control over pricing, making it easier to maintain profit margins.

The potential drawbacks

As with everything else in life, selling on Amazon has its cons, too.

1. Fees:

There are no free lunches. Whether it’s the fees paid for using Amazon’s FBA services or the costs associated with setting up a professional account, it costs money to sell on Amazon. It can get particularly cost-prohibitive for those selling not-so-unique products or those whose margins are smaller. Therefore, sellers must do their research on Amazon fees before setting up their professional accounts.

2. Lack of control: When signing up with Amazon, merchants agree to do things the Amazon way. This includes how they communicate with buyers, making good on their A-to-Z guarantee, what they can and cannot sell and so on.

3. Competition:

Since Amazon is the largest online platform to sell goods, there are thousands of sellers on there. And unless the seller is dealing in extremely unique or rare goods, they are bound to face stiff competition.

4. Unscrupulous sellers:

Counterfeiting and product hijacking are common occurrences on Amazon. These activities can harm seller ratings, destroy profits and ruin their reputation.

Even though Amazon assigns ASINs (item numbers) to all products, counterfeiters can list their products under someone else’s ASIN to take advantage of their high seller ratings or marketing efforts.

5. Customer care:

Whether businesses use Amazon’s FBA program or not, they are personally responsible for nurturing customer relationships, which are reflected in the seller rankings.

Customer reviews are the key to success on Amazon. They help millions of buyers determine the value of a product and/or seller. So, for sellers who are not ready to deal with customers, Amazon may not be the best place for them. However, those willing to go above and beyond in order to create a pleasant shopping experience are likely to benefit from positive reviews and repeat purchases.

Want more?

Escalon provides startups and small to midsized businesses with accounting, strategic finance, CFO services and support. Talk to an expert today.

Authors

Neha De

Neha De is a writer and editor with more than 13 years of experience. She has worked on a variety of genres and platforms, including books, magazine articles, blog posts and website copy. She is passionate about producing clear and concise content that is engaging and informative. In her spare time, Neha enjoys dancing, running and spending time with her family.

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Accounting & Finance

The pros and cons of partnering with Amazon

The upside of selling on Amazon

1. Easy to get started:

2. Bigger platform:

3. International reach:

4. Good platform for unique products:

The potential drawbacks

1. Fees:

2. Lack of control: When signing up with Amazon, merchants agree to do things the Amazon way. This includes how they communicate with buyers, making good on their A-to-Z guarantee, what they can and cannot sell and so on.

3. Competition:

4. Unscrupulous sellers:

5. Customer care:

Want more?

Authors

Neha De

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